Do MBAs have realistic salary expectations?

QS TopMBA.com recently did a survey of full-time MBA applicants from around the world.  The results, reported at the MBA news website Poets and Quants, show that U.S. applicants expect to make $140k per year upon graduation.  The average pre-MBA salary of the applicants is $58k.  So if their expectations were realistic, the full-time MBA would yield a 240% salary bump.

In many other countries, expectations are even less realistic.  For instance Russian applicants expect to pull in $144k versus their current salary of $37k.  The worst case is India, where applicants expect to make $112k, a 469% increase over their current $24k salary. 

Harvard MBA grads brought in $124k last year; the numbers from most MBA programs are much lower.  So something is seriously amiss.  There is plenty of MBA salary data available on the web, so it is hard to imagine ignorance is a factor.  One possibility is that applicants are over-confident on two counts: (1) underestimating the odds that they will get into a top 10 school and (2) overestimating their salary potential regardless of which school they get into. 

At NC State the salary bump for full-time Jenkins MBA grads has been running about 50 percent over the last two years, which is consistent with what you see at most large, public research-intensive universities.  The MBA remains a great investment.  In fact Forbes shows that five years after graduation, students make 2 to 2.5 times their pre-MBA salary.  But applicants should not expect to double their pre-MBA salaries immediately upon graduation. 

Thoughts on teacher pay

This week WSJ ran an op-ed by Andrew Biggs and Jason Richwine who claim that public school teachers are overpaid by a whopping 52% compared to what they could earn in the private sector.  The authors concede that salaries are comparable, so one would need about a 100% difference in benefits to yield a 52% gap in total compensation.  Then things get sloppy -- unpaid summer months get labelled vacation, defined benefit pensions are converted arbitrarily to defined contribution plans, and retiree health insurance gets labelled a giveaway that one never observes in the private sector.  So what we have is a comparison of what the average teacher gets in the public sector to what a WalMart employee gets in the private sector.  The authors do note that teachers do have much more job security than private sector workers, but it is hard to assign a market value to this benefit.  Their analysis is interesting (and their full paper cites by NC State colleagues Bob Clark and Melinda Morrill) and does provide the foundation for further work on this important subject.

Another fundamental question is whether public teacher pay is sufficiently high to attract the calibre of instructors that we need to maintain the US's position as a global leader in human capital.  Biggs and Richwine note that education majors entering college score in the 40th percentile on standardized tests.  In countries such as Finland, Singapore, and South Korea, the education majors undergo a more rigorous selection process.  Pay in Finland is roughly the same as in the US, but the Finnish teacher salary is much closer to the average salary for college graduates than is the case in the US.  My take: growing wage inequality means greater opportunities outside of teaching for our most talented young people, so we would actually need to raise teacher salaries if we were to seriously upgrade teacher capability in future generations.